The Absurd Report

In case you missed it, Moody’s Investors Service recently said that the bonds issued by the U.S. government may not be a completely safe bet in the future. Why? Because of the trillions of dollars in unfunded obligations to the Social Security and Medicare programs.

“These two programs are the largest threats to the long-term financial health of the United States and to the governments’ AAA rating,” Moody’s Vice President Steven Hess said in the agency’s annual report on the U.S. issued last month.

If this sounds serious, it is.

Moody’s, the universally accepted credit rating service, rates corporate and government bonds based on the ability of the borrower to repay the money. Simply put, when our government borrows money, bonds are issued to the lender. These bonds are promises to pay the money back in the future, with interest. Until now, our government’s bonds have carried the highest rating quality: triple-A.

As a result, institutions, individuals and foreign governments who want a guaranteed return on their money have turned to U.S. government bonds.

However, there is another kind of U.S. government bond that the public can’t purchase. Each year since 1984, Congress has taken the surplus Social Security taxes — tens of billions of dollars — and spent them on other government programs. In exchange, the Social Security Trust Fund is issued government bonds, with interest. When Social Security needs more money to pay the benefits of baby boomers, it will go to the U.S. Treasury to cash in these bonds.

But where will the money come from to repay the Trust Fund?